Adcore Inc. (ADCO) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Adcore's Investor Update Conference Call. [Operator Instructions]. On the call today, the company's CEO, Omri Brill, will provide a management declaration. This will be followed by an introduction from Adcore's Director of Finance, Amit Konforty; and subsequently, Adcore's CFO, Yatir Sadot, will present a financial overview of the company's Q3 2023 financial statement. We will then address pre-sent questions and time permitting, take questions from participants in the chat below. Before we proceed any further, I want to ensure your attention to the safe harbor statement applicable to our discussion today. It's important that you take a few minutes to read this statement carefully. The statement will also be viewable on our website once the call is finished. As mentioned, the statement will be viewable on our website afterwards, but I will now be turning the call over to Adcore's CEO, Omri Brill.

Thank you very much, Dani. And welcome, everyone. Let me share my screen. So again, welcome, everyone, and it's my pleasure to discuss at Adcore Q3 2023 financial results with you and give you some context and highlights. But actually, before we can start to -- get started talking about Q3 results, I would like all of us to take a moment and talk about the overall -- the attacks that the Hamas did on Israel on October 7, almost a bit more than one month ago. I would like to obviously say that the heart of everyone here in Adcore goes to the families that lost their loved one during this horrible attack. And obviously, we pray with the rest of you for the quick return of all the kidnaps. So it's not an easy time for us now in Israel, but I can say that it's also a very encouraging time for us in Israel. There's a lot of people that stepping up whether these individual, as companies taking some actions, supporting the communities and basically, I'm always proud to be as Israeli. But in times like that, even more proud than ever to be Israeli. And I would like to discuss with you a few very important initiatives that Adcore took as a company in order to support the communities. So I don't know if everyone is aware, but due to the war more than 200,000 children and the families from border towns around Israel, mainly in the South and North of Israel, have to evacuate it. So these communities evacuate through Kibbutz, evacuate through to hotels in the center of the country. And basically, there's a lot of needs to support these evacuated communities and Adcore took few initiatives regarding that. The first initiative I would like to cover is what we call IC3. So basically, we opened an ice cream booth and go to each community and we visit more than 10 communities around Israel with the ice cream booths, and I want to show you some nice video from it. [Presentation]

Okay. So the ice [indiscernible] is one initiative, and you can see some familiar from Adcore taking part of this amazing initiative obviously including myself and other within the management and the rest of the team here in Tel Aviv. And I want to cover another initiative that we took, which is, I would say, currently the main focus of the company as an initiative and what we call the Keep On Riding project. So under the initiative of the Keep On Riding, we decided that we would like to contribute new or used bikes to children from these evacuate communities. So it started as a need to come from a specific communities that we knew that were evacuated and we decided we can expand it and reach more kids and more communities. And obviously, with your help, we can reach even more. So I would like to share another video from this effort, and then we can discuss this effort a bit further. [Presentation]

So this specific project is very dear to our heart collectively between what Adcore contribute to this project, what management and individual contribute to this project, we already collected more than ILS 100,000 to this project. And we hope that with your help and the help of others, we can collect even more and reach even more children in need. And so basically, we're going to share this presentation, but you can do click in on this button, do it now or you can simply visit the company website adcore.com/relieve and find more details about this important project and how can you help and take part of it, so I encourage everybody to take involved usually, you say that when you give something, you get more in returns of what you're actually giving, and I can tell you that that's actually true. When helping these communities and helping these kids is the most important thing we can do right now as individuals. And obviously, as a company, it's important and we need your help in continue supporting this important project. So after we talked -- we discussed some initiatives, obviously following the 7 of October attack. I want to go deeper into the Q3 2023 report and provide some highlights and context to the numbers. And so all in all, yet another strong quarter for the company and the strong quarter go back to back with -- not like first -- strong first quarter results, strong second quarter results and now strong third quarter results. So definitely a very positive start of the year. We already connected more than 80% or 86%, if I'm not mistaken. Revenue this year than what we did in the entire year of 2022 and bear in mind that Q4 historically is the stronger quarter of the month for us. So there's like still a more good news hopefully to come. And if you look at about the top line numbers and gross profit. So total revenue in Q3 were CAD 8.2 million. That represents an [ 10% ] year-over-year growth compared to the previous period last year. And if you look at the 9 months, we're looking at almost 30% year-on-year growth, which is a very strong indicator of the entire of 2023 going to end for us. And gross profit, again, we saw a quarter-over-quarter increase of more than 10% to 3.3 million and all in all post top line numbers and midline numbers looking positive for us. And if you're looking at quality growth KPIs, then gross margin was 40%, which is within the normal 4 -- we're likely to be between 40% to 50%. So again, where we would like it to be. And North America will remain flat, but we expect to see a very strong growth in North America, actually in Q4 and obviously in 2024, in general. So we are very optimistic about what we can achieve in this specific market. If we talk a bit about half year results and a few highlights regarding the results, we discussed if we would like to reduce the burn rate in Amphy for the bare minimum. So if the average burn rate in Q1 2023 monthly burn rate was CAD 81,000. We already reduced it by 50% to CAD 41,000 in Q3 2023. We expect this trend to continue in Q4 2023 to CAD 25,000. So again, the burn rate is now going to be the bare minimum and it's something that we are definitely think very positively above. And from the flip side, when we look at the number of visitors to amphy.com and Amphy blog, you've seen definitely a positive trend of increasing numbers of visitors. Q1 was 48,000, Q2 was a bit less than 100,000 average monthly, Q3 was 115,000 average monthly visitors and then we expect Q4 to end up in around 130,000 monthly visitors. So again, the two [indiscernible] asked exactly the way we wanted to ask costs going down, number of visitors going up, which is obviously positive. And -- so just to sum up, revenue grew 10% year-over-year. If you look at 9 months, it's almost 30% year-over-year, which is amazing. EMEA solid growth of 20% year-over-year. APAC solid growth of almost 20% year-over-year and cash and cash equivalents grew by 21%. This is actually something that we are -- it was the focus for the company. And if you remember in previous earning call, we discussed that the company anticipated to have like a stronger balance sheet towards the second part of the year. And actually, it came a bit earlier than what we anticipated. So we are very happy with the results, both in cash flow and cash position for the company, which were improved significantly in the third quarter of the year, and Yatir will provide a bit more color to these numbers on his presentation as well. And comparables. So again, when we look about the current share price and the company valuation, obviously, there's a big gap between what we think the share price should be and where it is. This gap for us at least represents an opportunity. This is why Adcore continued to purchase shares within the market, obviously, every day. We buy the maximum allowed, the amount of shares that we can do under the NCIB plan and we continue to do so as long as we're seeing the share price don't really represent the true company valuation. So I think like, again, for us, this gap represents an opportunity, but every shareholder, obviously, is smart enough to do his own calculation. And finally, I would like to go back a bit and reflect on the growth that we discussed regarding 2023 at the beginning of the year and see if the company was enabled to meet them or not. So the first growth that we took on us in Q3 was to maintain a strong balance sheet. So obviously, now in Q3, both cash position and cash flow were improved, and we are very optimistic about what we can achieve in Q4 as well. Obviously, traditionally Q4 should be the strongest quarter of the year. So again, we improved the balance sheet, and we expect the balance sheet to balance it -- sorry to improve even further during the last quarter of the year and keep the gross margin within the 40% to 50% range. Again, checked on this one. Achieved double-digit growth in revenue and gross profit, checked. The company grew 10% in the [indiscernible] year-on-year in the third quarter and grew almost 30% for the 9 months of 2023 compared to the same period last year and expand our global footprint in North America. So again, we saw like good results coming from all regions, but the company is very optimistic about the growth we can achieve in North America specifically for Q4 and beyond, and that's something that we definitely would like you to keep a closer look on because that's a bigger market for us and represents a massive opportunity for the company. And second a strategic partnership, checked. Microsoft, Criteo, [indiscernible], I can name a few more and names like that, that all of them have a very strong partnership with [ Adcore obviously ] Google and Facebook or Meta as well and invest in R&D. So our continued investment in R&D is responsible to some of the fruit that we see now in the Q3 earning report. So again, all the possibility took on ourself at 2023, I can proud to say that we met all of them and hopefully the same positive trend that we saw, and let's say, in the first 3 quarters of the year will continue into Q4 as well. So I think with that, I concluded my part, and I'm going to hand it over back to you, Dani.

Thank you, Omri, for your performance insights. I will now pass the call over to an introduction from Adcore's Director of Finance, Amit Konforty.

Thank you, Dani, and good morning, everyone. Allow me to introduce myself. So my name is Amit Konforty, and I currently serve as the Director of Finance here at Adcore. Starting next week, I will be stepping into the role of CFO. During my time at Adcore has been deeply involved in all of the financial aspects of the company. And I believe that this experience has prepared me well to the transition to the CFO position. A bit about my professional background. I am a CPA with over 10 years of experience in various industries and also in public companies. Lastly, I wanted to say that I am very excited about the opportunity to continue Adcore's success and also drive its growth and financial stability even further. So thank you. And with that, I will turn the call back to Dani.

Thank you, Amit. We look forward to seeing you start you in your role here at Adcore. Lastly, we will hear from Adcore's CFO, Yatir Sadot, who will provide an overview of the Q3 2023 financial statements.

Thank you, Dani, and good morning, everyone. I would like to present a clear and comprehensive overview of our third quarter financial results, highlighting both GAAP and non-GAAP metrics, all denominated in Canadian dollars. As Omri mentioned before, despite facing a difficult business environment, our team performed well in the third quarter, maintaining the same positive momentum we experienced in the first 2 quarters of 2023. Since mid-2021, we've strategically focused on higher-margin revenue streams and building the relationship with scalable resilient clients. This approach has enhanced our business sustainability and improved our long-term profitability. Now let's dive into details. For the 3 months ended September 30, 2023, we delivered revenue of CAD 8.2 million compared to CAD 7.5 million year-over-year, an increase of CAD 0.7 million or 10%. In terms of sequential growth between the quarters this year, we are delighted to have achieved a 19% increase in revenues amounting to an impressive increase of CAD 1.3 million when compared to the second quarter revenues this year. Gross profit was CAD 3.3 million compared to CAD 3.4 million almost the same level year-over-year. This quarter, gross margin was 40% compared to 46% in the same period last year. We kept the target range of gross profit between 40% and 45% and we feel pretty much confident about that result. As for operational expenses, R&D expenses were CAD 0.3 million or 4% of revenues, compared to CAD 0.5 million or 7% of revenues year-over-year. The main reason for the decrease is primarily attributed to the strategic shift towards operational efficiency and the successful reduction of development expenses in Amphy. Sales and marketing and general and administrative expenses were CAD 3 million or 37% of revenues compared to CAD 2.5 million or 33% of revenues year-over-year. SG&A expenses increased mainly due to partnership expansion and marketing expenses. Operating loss was CAD 0 million compared to an operating profit of CAD 0.4 million, and net loss was CAD 0.2 million compared to a loss of CAD 0.3 million year-over-year. Total revenue, as you can see on the left hand of the slide, we went up by 10% year-over-year. On the right hand of the slide, you can see the growth for the first 9 months of this year by 28% compared to the same period last year. Another bull effect. Although the first 3 quarters, we've secured more than 83% of last year's total revenues, setting the stage for a robust fourth quarter [ upturn ]. Revenue breakdown. As of our geo revenue breakdown in EMEA and APAC region showed the most growth year-over-year. As you can see, EMEA grew by 20%, APAC grew by 90% and North America went down by 18%. We continue to observe strong momentum and notable expansion in our partners plan. Net cash used in operating activities. In the 3 months ending September 30, 2023, the company provided CAD 1.5 million in net cash for operating activities, a significant improvement from the CAD 1.7 million used during the same period last year. This positive shift can be attributed to the team's excellent effort in enhancing our collections from clients reducing vendor payments and securing improvement terms with existing suppliers. Same trend, you can see on the -- since the first quarter of this year, the trend of healthy cash flows also reflected consistently across the quarters, of 2023. You see from the first quarter of this year, we used over CAD 1 million of cash flow for operating activities on the second flow, CAD 429,000 negative cash flow. And on the third quarter, for the first time, we went up for a positive significant cash flows. In terms of financial position, we ended Q3 with cash and cash equivalents of CAD 7.6 million as of September 30, 2023, compared to CAD 8.8 million at December 31, 2022. Total working capital of CAD 7.7 million compared to CAD 9.2 million at December 31, 2022, a decrease of CAD 1.5 million or 16%. The decrease in cash is mainly attributable to the media payments related to the fourth quarter of 2022, purchasing shares to NCIB, as we mentioned before. This is a strategic decision that the management took investment in Amphy and expanding our partnerships plan. We anticipated reducing our cash expenditure in operating activities and increasing our cash and cash equivalents in the latter half of 2023. That was my expectation, Omri's expectation in the first quarter this year and the second quarter, and we did it, as you can see. On the other side of the balance sheet, we still don't have any significant low debt. So it's very healthy for a company like Adcore to preserve 0 debt in hyperinflation environment as we have today. In terms of adjusted EBITDA, our quarterly non-GAAP results reflect adjustment for the following items. Depreciation and amortization totaled CAD 208,000, share-based payment total CAD 32,000 and for the 3 months ended September 30, 2023, adjusted EBITDA was CAD 240,000 compared to CAD 734,000 for the same period in 2022. Excluding entries EBITDA looking only on the AdTech EBITDA. Adjusted EBITDA for the AdTech activity was CAD 350,000, showing a very strong result for the AdTech activity. With that, I will turn the call back to Dani.

Thank you, Yatir. We value your time here at Adcore, and we wish you all the best in your next challenge.

Thank you, Dani.

We will now move over to our pre-sent questions. The first question for EMEA and APAC, what drove revenue increases?

I can take this one. I think it's mainly the normal course of business, right? It's client acquisition, the same-store growth within existing client portfolio. And all in all, like a strong activity going from these 2 specific regions.

Thank you. For our second question. What impact has the war in Israel had on your business, both from customer and human resources standpoint?

Okay. So that's a fair question. We did address this question in the PR that we released earlier this month, but I would say the following, a; the company first and foremost priority is the safety and well-being of our staff. So when everything started, we switch immediately to work remotely. Since -- to COVID, I don't know if you could say thanks to COVID, but the company already used to work remotely if needed and operations were going smoothly and ongoing as usual when we switch to work remotely. Now I'm happy to report that we are gradually going back to work from the office, at least hybrid working remotely and from the office as well, which is obviously a good sign as things are getting -- but a bit sense of normality, which is important. And I would say with regards to client activity. So Adcore lucky enough as a global company and our specific operation within Israel is relatively not so big in terms of the overall activity. So even if the entire operation that we had in Israel were shut out to zero, still Adcore impact wasn't so great. Having said that, that's definitely not wasn't the case. So it seems like a lot of e-commerce clients actually what we saw in the beginning to stop some activity, but then resume immediately. And now we can see that actually getting better numbers than usual. Maybe it's November related, maybe it's a bit like COVID effect that people staying at home and prefer to buy online even during a time like that. And so I think e-commerce running as usual or even a bit stronger. We saw some stopping in travel-related activity, but on the flip side, since Adcore won the largest standard of online advertising for the Israel advertising agency. So we got a lot of budget that is, I would say, war related. So I think like all in all, we don't see a decrease, if any, we see an increase. I don't know if it make too much sense, but that's the reality on the ground.

Our third question is, are you still expected to be net income positive in Q4?

And maybe, Yatir, you want to answer that.

I will take it. Thank you, Dani. Yes, we anticipate to be profitable and generate positive cash in the fourth quarter, which is historically the strongest quarter for the company. So yes, the short question.

And for our fourth question, do you plan on continuing to participate in the NCIB? And are there any other plans for cash?

Yes. So it's 2 questions, but obviously, they are related because they are cash related. I think, a; NCIB, we are participating. I see the current plan is going to run until May, if I'm not mistaken 2024. And obviously, we still see this gap and opportunity for us to purchase more shares for consideration we continue to do so. Bear in mind that we are restricted by the plan. So it's not that we can use everything that we have in order to purchase as planned, this limitation. But within the limitation of the plan, we are doing everything we can. Let me put it this way. And in terms of reserving cash, Adcore put efficiency, operational efficiency, is #1 priority for the company. And we talk about the time and again, our importance for us to be operation net positive in operation as well. And I think also improving the balance sheet. So we've already proved that we can do it in the third quarter. And I think like Yatir said, we anticipate this positive momentum going to carry well into the fourth quarter as well.

Thank you. For our fifth question. Which regions do you expect to see strong growth in over the next 12 to 24 months?

So from one end, like to everything is, I would say, something that the company anticipate to say. I don't have a crystal ball that's going to tell me the future. But like I mentioned during my CEO remarks and we think that North America has the potential to become a very strong and important region for us, Q4 and definitely 2024 was -- in the entire year. So if I need to bet, I will put my chips on North America, which is, by the way, goes in line with the company's strategic decision to focus more and more in this supported market.

Thank you. For our next question, are interest rates and fear of recession impacting the business?

It's a good question. Yatir, what do you think?

Basically, we have witnessed a recession in the last 2 years. So far, the recession has not affected the company's results, and we do not -- I don't foresee any harm or impact in the foreseeable future. Regarding the high interest rates, since we are not a leverage company with that, the interest rate allows us to enjoy good conditions under the short-term investments like the deposits, we have like an effective rate of 6% which is very high.

It's not bad, right?

So keep it up. So it's an advantage, not a disadvantage.

So you don't want to see the Fed starting the decrease in rates at the end.

Okay. And how is Q4 going? And do you think it will be in line with any prior expectation?

It's a third question. I would say it's a bit too early because you need to bear in mind that most of the spend in Q4 is actually happening in the last week of November, which is Black Friday, and then obviously in December. So I think like we didn't really see the beginning of [ Q4 year ]. So I think like it will be a bit more safe to have remarks or some type of outlook regarding Q4, positively in November post Black Friday sales. Having said that, we don't have any negative indications. So up until now, all the indications are positive, and we are in line with the positive trend that we saw during Q1, Q2 and Q3 as well.

And for an [ ultimate ] question, can you provide an update on Amphy? For instance, what are your plans for this business as we have not heard much in it for some time?

Yes. So I think like it's not entirely true because we do talk about Amphy in almost every earning call, and we show some numbers, I think like with Amphy, I would say a few things around 6 months ago, we did like a shift of focus and decided to focus more on business related with educational materials and the entire, let's say, skill of the website chains and everything changes our focus of the different materials that we have, and we put a lot of effort to transit Amphy from a B2C to a more B2B2C type of business. And so that's one thing. I think the main priority with Amphy has reduced the burn rate to the bare minimum. And I think we can definitely prove that we know how to do it. We expect the burn rate to be very minimal, CAD 25,000, not even dollars in -- monthly in Q4 2023 -- and I think all in all, if we can maintain the same positive trend that the costs are going down. And basically, we see some improvement in momentum in the business activity then I think that we can be on the right track. Obviously, things take time. You can't build unfortunately, business overnight. Also another important things to consider that Q4 traditionally also for Amphy is a very strong quarter.

And for our final pre-sent question. Can you provide any update on earlier learnings from Media Blast app?

Obviously, it's a bit early, right. It still is recently launched. We launch it on the Google version, and we are now -- every week now as I think like next 10, next week, even we can release the Microsoft version of the app. So they are -- can support both Google ads and Microsoft advertising as well. I think so far, we see a very positive trend. There's a lot of, let's say, demand for this app. And actually in terms of, let's say, how much revenue this app is generated in a very short period of time, that I think it's definitely a success story.

Thank you. And we have 2 questions here from people in the chat. Do we have time for this?

Yes, why not? Of course.

Okay. So our first question is from Alexis Edelman, who would like you to elaborate on why you feel North America sales have declined in this past quarter.

Okay. So I think like, a; obviously, the few factors that can impact the decline [indiscernible] decline in this type of activity. Some of it can be seasonality or let's say, transition of earnings between one quarter to another quarter, so that can have some impact on the result. But I think that in the long run, 2024 and even Q4 2023, we are very bullish regarding North America. So I think that's a plateau, but this plateau will turn into a spike that we're going to see in early coming from this specific region. So again, I'm very bullish regarding this specific region, and it's a strategic region for the company in general.

And second and final question from the chat is from Matthew Charran who would like to know what you have to say regarding the share price and its continuation in falling.

Yes. So I would say the following: a; obviously, we have little control about the share price, unfortunately. So we do everything we can do under our power in order, whether it's NCIB and also purchasing shares as individual or management as well. But I think like, again, the way I see the current share price, it's more market related than Adcore related and if any, it represents a real buying opportunity. But again, you shouldn't listen to me. You should do your own analysis and then decide whether you want to take position, increase your current position and everybody should know better what to do with his own money. Adcore as a company and I as individual definitely [ holding ] and buying shares when possible.

Thank you, Omri. And I will now hand it back over to you for any closing comments.

Okay. Thank you, Dani. Can we stop sharing? So thanks everyone. I want to take this opportunity to thank Yatir for the 4 years in Adcore. Yatir joined the company when we just started our journey as a public company, help us build the financial report that we see help us build the infrastructure. When Yatir joined the company, I think it was like with 1 like 2, maybe 2 companies, right? We have [indiscernible] podium, which is the Israeli entity and to date, how many entities we have?

We have 6 entities.

And counting. And then so a lot of the structure that we have today, a lot of them like the different -- it's not easy to have a global organization. A lot of these done thanks to Yatir and the team here to be the finest team here to build in Tel Aviv and for Adcore. So best of luck Yatir in your new role as well in your new venture.

Thank you very much, Omri. First of all, thank you for the opportunity and the trust that you gave me throughout the last 4 years. I couldn't ask for a better CEO. I mean, you're not only a CEO, you're also a friend, and I'm going to be like going to be here around for Adcore, for you guys as much as you need. And I want to say -- this is my family. So thank you for everything.

The feeling is mutual, and I want to obviously take this opportunity as well and say best of luck to Amit with a new role as the new company CFO. We know Amit for a while now. And everybody in the company learn to like Amit because it's like [indiscernible] person. He is a very solid guy comes with a lot of experience. A lot of the financial statements of the company, released in the last 1.5 years have been done mainly through the [indiscernible] of Amit. So Amit is a detailed guy. You know everything that we need to know about the company, about the company financial structures. And I'm sure Amit that you're going to be do as you did an excellent job with the company Director of Finance. I'm sure that you were going to do even a better job as the company's CFO. So best of luck in your new role as well, Amit.

Thank you very much.

Cool, cool. Guys, so thanks, everybody, join us today and obviously stay in touch with the company PR. Get involved in the company initiative. We need you guys to be involved and hopefully, we can report even a stronger quarter in the next quarter in Q4.